Minimum Wage

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Minimum Wage

Joshua Elwess (12th), Reporter

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Minimum wage is the lowest remuneration that employers can legally pay their workers. The federally mandated minimum wage in the US is $7.25 per hour. The minimum wage varies with states.

Increasing the minimum wage is currently a very popular idea. According to a Pew Research Center poll in the 30th of July in 2019, 67% of Americans supported raising the minimum wage to $15 an hour, with 41% of the population strongly in favor of such an increase, while 33% of Americans are opposed to increasing the minimum wage.

An article by Reuters gave information about a study related to suicide rates and minimum wage. The article states, “For the current study, researchers examined data on suicide rates and minimum wages in all 50 U.S. states from 2006 to 2016.” The article also stated, “‘Our study found that when a state increased its minimum wage, the suicide rate increased less than in other states and other times,’ said lead study author Alex Gertner of the University of North Carolina at Chapel Hill.”

The article states “‘It’s possible that increasing the minimum wage improves life satisfaction, increases access to healthcare and decreases mental illness, which all lead to fewer suicide deaths,’ Gertner said by email. ‘We can’t say for sure that the slower growth in suicide rates is caused by increasing minimum wages, but it warrants further study.’” Because of studies like this, one might make the argument that increasing minimum wage could lower suicide rates. One might argue against that by saying that there is still no strong amount of evidence that an increase in minimum wage could lower suicide rates.

Some argue that the supply and demand model shows that the minimum wage causes unemployment. Ed Leamer, a professor of economics and statistics, has stated, “Ninety-nine percent of what economists believe is the theories they put forward. That’s what leads most of them to ignore evidence. I’m a believer in evidence, not theory. The basic supply and demand model just doesn’t work for the labor market.” The same article with that quote stated, “Regardless of any employer’s unnatural wage-setting power, most economists believe the classical laws of supply and demand take over at some level. Theoretically, for example, a $100 minimum wage in Kansas would kill businesses there, because many don’t have profits enough to pay it, or the ability to pass on the costs to customers.”

Some argue that only teenagers would be affected by a minimum wage increase. According to UC Davis’ Center for Poverty Research, “[n]early half” of “hourly workers paid at or below minimum wage in 2013” “were under age 25.” One could argue that this information shows that plenty of adults would be affected by a minimum wage increase.

I interviewed John Perry, a teacher of AP Microeconomics at John H. Pitman High School, for his thoughts on minimum wage. I asked him if he supported increasing the minimum wage.

Perry stated, “Economic principles dictate that an increase in the minimum wage has a consequence of increasing the supply of labor in a market while decreasing the demand for labor by businesses looking for labor.  We call this a Surplus condition. We are seeing this clearly in your local McDonalds with the implementation of automatic drink filling machines and kiosk ordering. I worry that increasing the minimum wage will see an increased shortage of low skill/no skill jobs for students looking for a start in the workforce and build valid entries on their resumes.”

I told Perry that some people argue that increasing the minimum wage increases unemployment. I asked Perry if he agreed with this idea or not and why or why not.

Perry stated, “Back to economic principles, minimum wage does increase unemployment for those low skill workers.  As wages increase businesses must make value judgments on the value of labor for the designed task. When labor becomes more expensive, businesses look for less expensive or more efficient substitutes for labor.  We see this with kiosk ordering, self checkout, automation… In Economics, the benefit of an action must always meet (or for many entrepreneurs, exceed) the cost.”

I told Perry that some people believe that increasing the minimum wage reduces poverty. I asked him if he agreed with this idea and why or why not.

Perry stated, “As an educator, I believe the best way to combat poverty is education.  Building a strong set of KSA’s (knowledge, skills, and abilities) is vital to upward financial success. Students who value their educational opportunities, who study, who are lifelong learners naturally have better long term financial outcomes. They will have built themselves a toolbox of KSA that no one can take from them. These KSA’s insulate them from the minimum wage economy, some economic downturn, and financial woe.”

I asked him if he saw any positive effects happening from increasing the minimum wage. He stated, “Those who are able to keep their jobs will see an increase in their wage.  Those who lose their jobs may now have the incentive to seek new educational opportunities and build more KSA’s to be better able to compete for higher skilled jobs. The biggest positive I see is those who seek out new KSA’s as they will see the greatest long term benefit to their financial future.”

I asked him if he saw any negative effects happening. He stated, “Losing a job is never fun.  There is significant anxiety and possible depression involved with the loss of ones’ work identity.  There is also the whole “more expensive goods” thing as the cost to produce increases, caused by the increased cost of labor…”

I asked him why he thought so many studies of minimum wage give contradictory results. He stated, “The economy is a complex, vast, and intricate system with millions of transactions every minute.  Researchers must take a snapshot of the economy to have any chance of studying anything. Depending on this snapshot, and the constraints of the study, two researchers researching the same research topic may come to two differing conclusions.”

I quoted an Abstract of a study. It stated, “A proposal to raise the federal minimum wage to $15 by 2024 would increase the relative minimum wage – the ratio to the national median wage– to about .68. In Alabama and Mississippi, our two lowest-wage states, the relative minimum wage would rise to .77 and .85, respectively. Yet research on state-level minimum wage policies does not extend beyond $10; the highest studied state-level relative minimum wage is .59. To close this gap we study minimum wage effects in counties and PUMAs where relative minimum wage ratios already reach as high as .82. Using ACS data since 2005 and 51 events, we sort counties and PUMAs according to their relative minimum wages and bites. We report average results for all the events in our sample, and separately for those with lower and higher impacts. We find positive wage effects but do not detect adverse effects on employment, weekly hours or annual weeks worked. We do not find negative employment effects among women, blacks and/or Hispanics. We do find substantial declines in household and child poverty.”

Perry stated, “I would like to see the entire study. Abstracts are like movie trailers. Most of the time they show the best parts of a movie and I should have waited for it to come out on Netflix instead of spending $50 to see it in the theater. With any study the most important information is the hard data and the constraints of the study.”

I asked him if he thought poor adults could gain from a minimum wage increase. He stated, “The most important scaffold we can do for our working poor in the United States is to increase educational opportunities for them.  I would love to see expansion in the adult school programs offered across the nation (we happen to have an amazing adult school program in Turlock). CTE is also a huge boost to an economy. Industry in our community is always looking for skilled tradespeople to fill good paying careers in manufacturing, maintenance, and agriculture.  Supporting CTE helps break the cycle of adult poverty by equipping high school students with marketable skills that pay above minimum wage and generally offer competitive benefits.”

Perry stated, “Education is the great equalizer, and the most sure path to future economic prosperity.  Call me old school but I believe it is better to teach a person to fish instead of just giving them my extra salmon. Being self sufficient and capable benefits everyone in an economy.  It creates more productive economic activity, with greater economic value, and with more diversity in products; leading to more consumer choice.”

Many studies show conflicting results about whether increasing the minimum wage causes unemployment. An NPR article states, “When Seattle increased the minimum wage from $9.47 to $11 in 2015, researchers found that, like the Card and Krueger study, there were insignificant effects on employment. Sweet! But — hold your horses — they found the next hike, from $11 to $13 in 2016, did hurt employment.”

The article also states, “If you look at the larger group of what we’ll call low-wage workers, who make the minimum wage or close to it, they had fewer opportunities. Wages went up, but employers cut back on work hours — so much so that low-wage workers ended up poorer to the equivalent of about $74 per person, per month. A follow-up study found this pain was mainly shouldered by workers without prior experience, who found it harder to get hired. The saga suggests the magic number in Seattle is around $13/hour.”

However, the article also says, “A recent research paper by Arindrajit Dube and colleagues, which analyzes a massive sample of 138 state-level increases in the minimum wage over four decades, confirms those earlier studies that find the minimum wage is not a job killer. That said, most of the increases in the study are what we’d call modest increases, about 10% on average. The increase studied in Seattle was 37%.”

The article states, “But, in our quest to find the magic number, Dube’s study may help. Dube believes that when setting a minimum wage, it might matter less what the exact level is and more how it compares to what everyone else is making in the same city or state. His recent study finds states can raise the minimum wage up to 59% of their median wage and not see significant job losses.”

The article says, “Raise the minimum wage beyond this point, however, and you’re in a dark abyss of evidence where it’s possible that there could be sizable losses. At that point, the costs to low-wage workers could outweigh the policy’s benefits. And the bigger the raise, the bigger the risk.”

A Pews Research Center article states, “After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.” Some would argue that, because of this information, we must increase the minimum wage to increase wages. Minimum Wage is a very important topic with many interesting facts related to it.

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